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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 0-24913
BIOSHIELD TECHNOLOGIES, INC.
GEORGIA | 58-2181628 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
5655 PEACHTREE PARKWAY
(770) 246-2000
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) and has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 10, 1999, there were 6,359,457 outstanding shares of the Registrants Common Stock, no par value per share.
BIOSHIELD TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page | ||||||
PART I. FINANCIAL INFORMATION |
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Item 1. | Financial Statements | |||||
1. | Balance Sheets as of September 30, 1999 (unaudited) and June 30, 1999. | 1 | ||||
2. | Statements of Operations for the three month periods ended September 30, 1999 and 1998 (unaudited) | 2 | ||||
3. | Statements of Operations from June 1, 1995 (inception) thru September 30, 1999 and 1998 (unaudited) | 2 | ||||
4. | Statement of Changes in Stockholders Equity (Deficit) for the three month period ended September 30, 1999 (unaudited) | 3 | ||||
5. | Statements of Cash Flows for the three month periods ended September 30, 1999 and 1998 (unaudited) and from June 1, 1995 (inception) thru September 30, 1999 and 1998 (unaudited) | 4 | ||||
6. | Notes to Financial Statements | 5 | ||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 8 | ||||
PART II. OTHER INFORMATION |
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Item 6. | Exhibits and Reports on Form 8-KSB | |||||
SIGNATURES |
13 | |||||
EXHIBIT INDEX |
14 |
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, | June 30, | |||||||||
1999 | 1999 | |||||||||
(Unaudited) | ||||||||||
ASSETS |
||||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $ | 5,074,266 | $ | 2,500,561 | ||||||
Marketable securities | 87,500 | 103,250 | ||||||||
Accounts receivable | 107,492 | 102,013 | ||||||||
Stockholders subscription receivable | | 4,798,750 | ||||||||
Inventories | 165,743 | 151,403 | ||||||||
Prepaid expenses and other current assets | 181,011 | 171,073 | ||||||||
Total current assets | 5,616,012 | 7,827,050 | ||||||||
PROPERTY AND EQUIPMENT, NET | 523,928 | 202,400 | ||||||||
DEPOSITS AND OTHER LONG-TERM ASSETS | 630,242 | 194,293 | ||||||||
$ | 6,770,182 | $ | 8,223,743 | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |
||||||||||
CURRENT LIABILITIES: | ||||||||||
Accounts payable | $ | 723,736 | $ | 597,877 | ||||||
Accrued liabilities | 514,377 | 195,044 | ||||||||
Accrued payroll | 68,289 | 58,085 | ||||||||
Accrued interest payable | 839 | 839 | ||||||||
Total current liabilities | 1,307,241 | 851,845 | ||||||||
MINORITY INTEREST | 6,124,750 | 4,798,750 | ||||||||
STOCKHOLDERS EQUITY (DEFICIT): | ||||||||||
Common stock no par value; 50,000,000 | ||||||||||
shares authorized; 6,325,915 and 6,322,315 | ||||||||||
issued and outstanding at September 30, 1999 | ||||||||||
and June 30, 1999, respectively | 7,357,888 | 7,336,318 | ||||||||
Additional paid-in capital | 1,977,300 | 870,900 | ||||||||
Accumulated other comprehensive earnings (loss) | (17,500 | ) | (1,750 | ) | ||||||
Deficit accumulated during the development stage | (9,979,497 | ) | (5,632,320 | ) | ||||||
(661,809 | ) | 2,573,148 | ||||||||
$ | 6,770,182 | $ | 8,223,743 | |||||||
The accompanying notes are an integral part of these statements.
1
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(Unaudited) | (Unaudited) | |||||||||||||||||
Three months ended | June 1, 1995 (inception) | |||||||||||||||||
September 30, | to September 30, | |||||||||||||||||
1999 | 1998 | 1999 | 1998 | |||||||||||||||
Net sales | $ | 144,445 | $ | 87,854 | $ | 1,687,567 | $ | 1,325,640 | ||||||||||
Cost of sales | 90,488 | 33,736 | 749,881 | 504,216 | ||||||||||||||
Gross profit | 53,957 | 54,118 | 937,686 | 821,424 | ||||||||||||||
Operating expenses | ||||||||||||||||||
Marketing and selling | 805,467 | 114,379 | 2,282,741 | 806,319 | ||||||||||||||
General and administrative | 3,023,654 | 259,982 | 7,010,058 | 2,290,393 | ||||||||||||||
Research and development | 633,984 | 37,802 | 1,874,998 | 453,930 | ||||||||||||||
4,463,105 | 412,163 | 11,167,797 | 3,550,642 | |||||||||||||||
Loss from operations | (4,409,148 | ) | (358,045 | ) | (10,230,111 | ) | (2,729,218 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||
Royalty fees | | | 75,000 | | ||||||||||||||
Consulting income, net of consulting expenses of $19,474 for the period ended June 30, 1998 | | | 39,908 | 39,908 | ||||||||||||||
Interest and dividend income | 61,971 | 818 | 171,043 | 7,756 | ||||||||||||||
Interest expense | | (16,335 | ) | (35,337 | ) | (34,712 | ) | |||||||||||
Net loss before income taxes | (4,347,177 | ) | (373,562 | ) | (9,979,497 | ) | (2,716,266 | ) | ||||||||||
Income tax (expense) benefit | | | | | ||||||||||||||
Net loss | (4,347,177 | ) | (373,562 | ) | (9,979,497 | ) | (2,716,266 | ) | ||||||||||
Other comprehensive earnings (loss) | ||||||||||||||||||
Unrealized holding loss on securities | (15,750 | ) | | (17,500 | ) | | ||||||||||||
COMPREHENSIVE LOSS | $ | (4,362,927 | ) | $ | (373,562 | ) | $ | (9,996,997 | ) | $ | (2,716,266 | ) | ||||||
Net loss per common share: | ||||||||||||||||||
Basic | $ | (0.69 | ) | $ | (0.08 | ) | $ | (2.12 | ) | $ | (0.64 | ) | ||||||
Weighted average common shares outstanding | 6,325,915 | 4,747,021 | 4,717,026 | 4,268,977 | ||||||||||||||
The accompanying notes are an integral part of these statements.
2
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
Deficit | ||||||||||||||||||||||||
Common stock | Accumulated | accumulated | ||||||||||||||||||||||
no par value | Additional | other | during the | |||||||||||||||||||||
paid-in | comprehensive | development | ||||||||||||||||||||||
Shares | Amount | capital | earnings (loss) | stage | Total | |||||||||||||||||||
Balance at June 1, 1995 | | $ | | $ | | $ | | $ | | $ | | |||||||||||||
Proceeds from original issuance of shares | 3,907,086 | 500 | | | | 500 | ||||||||||||||||||
Proceeds from issuance of shares under private placement offering |
62,612 | 115,000 | | | | 115,000 | ||||||||||||||||||
Stock warrants issued for services rendered | | | 60,000 | | | 60,000 | ||||||||||||||||||
Net loss June 1, 1995 (inception) through June 30, 1996 |
| | | | (356,316 | ) | (356,316 | ) | ||||||||||||||||
Balance at June 30, 1996 | 3,969,698 | 115,500 | 60,000 | | (356,316 | ) | (180,816 | ) | ||||||||||||||||
Proceeds from issuance of shares under private placement offering |
149,723 | 275,001 | | | | 275,001 | ||||||||||||||||||
Proceeds from issuance of shares under private placement offering |
245,000 | 600,000 | | | | 600,000 | ||||||||||||||||||
Stock issuance costs related to private placement offerings | | (25,000 | ) | | | | (25,000 | ) | ||||||||||||||||
Stock warrants issued for services rendered | | | 62,400 | | | 62,400 | ||||||||||||||||||
Net loss for the year ended June 30, 1997 |
| | | | (514,459 | ) | (514,459 | ) | ||||||||||||||||
Balance at June 30, 1997 | 4,364,421 | 965,501 | 122,400 | | (870,775 | ) | 217,126 | |||||||||||||||||
Proceeds from issuance of shares under private placement offering |
30,619 | 187,500 | | | | 187,500 | ||||||||||||||||||
Stock options issued for services rendered | | | 156,650 | | | 156,650 | ||||||||||||||||||
Contribution to capital | | | 50,000 | | | 50,000 | ||||||||||||||||||
Net loss for the year ended June 30, 1998 |
| | | | (1,471,929 | ) | (1,471,929 | ) | ||||||||||||||||
Balance at June 30, 1998 | 4,395,040 | 1,153,001 | 329,050 | | (2,342,704 | ) | (860,653 | ) | ||||||||||||||||
Proceeds from issuance of shares under initial public offering |
1,300,000 | 5,102,794 | | | | 5,102,794 | ||||||||||||||||||
Proceeds from exercise of stock warrants | 612,275 | 1,065,523 | | | | 1,065,523 | ||||||||||||||||||
Proceeds from exercise of stock options | 15,000 | 15,000 | | | | 15,000 | ||||||||||||||||||
Stock options issued for services rendered | | | 95,250 | | | 95,250 | ||||||||||||||||||
Compensation related to previously issued options | | | 121,600 | | | 121,600 | ||||||||||||||||||
Contribution to capital | | | 325,000 | | | 325,000 | ||||||||||||||||||
Unrealized loss on securities | | | | (1,750 | ) | | (1,750 | ) | ||||||||||||||||
Net loss for the year ended June 30, 1999 |
| | | | (3,289,616 | ) | (3,289,616 | ) | ||||||||||||||||
Balance at June 30, 1999 | 6,322,315 | 7,336,318 | 870,900 | (1,750 | ) | (5,632,320 | ) | 2,573,148 | ||||||||||||||||
Proceeds from exercise of warrants | 3,600 | 21,570 | | | | 21,570 | ||||||||||||||||||
Stock warrants issued for services rendered | | | 1,106,400 | | | 1,106,400 | ||||||||||||||||||
Unrealized loss on securities | | | | (15,750 | ) | | (15,750 | ) | ||||||||||||||||
Net loss for the quarter ended September 30, 1999 |
| | | | (4,347,177 | ) | (4,347,177 | ) | ||||||||||||||||
6,325,915 | $ | 7,357,888 | $ | 1,977,300 | $ | (17,500 | ) | $ | (9,979,497 | ) | $ | (661,809 | ) | |||||||||||
The accompanying notes are an integral part of these statements.
3
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended | June 1, 1995 (inception) | |||||||||||||||||||
September 30, | to September 30, | |||||||||||||||||||
1999 | 1998 | 1999 | 1998 | |||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net loss | $ | (4,347,177 | ) | $ | (373,562 | ) | $ | (9,979,497 | ) | $ | (2,716,266 | ) | ||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||||||
Depreciation and amortization | 15,884 | 5,078 | 76,565 | 37,544 | ||||||||||||||||
Issuance of stock and stock warrants for services rendered | 1,772,400 | 48,750 | 2,268,300 | 327,800 | ||||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||||||
(Increase) decrease in: | ||||||||||||||||||||
Accounts receivable | (5,479 | ) | (15,827 | ) | (107,492 | ) | (125,908 | ) | ||||||||||||
Inventory | (14,340 | ) | (14,935 | ) | (165,743 | ) | (172,719 | ) | ||||||||||||
Prepaid expenses and other current assets | (9,938 | ) | | (195,253 | ) | | ||||||||||||||
Deposits and other assets | (435,949 | ) | 42,000 | (631,105 | ) | (36,516 | ) | |||||||||||||
Increase in: | ||||||||||||||||||||
Accounts payable | 125,859 | 36,554 | 723,736 | 346,092 | ||||||||||||||||
Accrued liabilities and payroll | 329,537 | 31,269 | 583,505 | 365,007 | ||||||||||||||||
Net cash used in operating activities | (2,569,203 | ) | (240,673 | ) | (7,426,984 | ) | (1,974,966 | ) | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Capital expenditures | (337,412 | ) | | (585,388 | ) | (122,072 | ) | |||||||||||||
Purchase of marketable securities | | | (105,000 | ) | | |||||||||||||||
Net cash used by investing activities | (337,412 | ) | | (690,388 | ) | (122,072 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from debt | | | 655,000 | 655,000 | ||||||||||||||||
Repayment of debt | | (62,500 | ) | (655,000 | ) | (62,500 | ) | |||||||||||||
Contribution to capital | | 325,000 | 375,000 | 375,000 | ||||||||||||||||
Proceeds from stock warrants exercised | 21,570 | 224,542 | 1,087,093 | 224,542 | ||||||||||||||||
Stock issued under stock option plan | | | 15,000 | | ||||||||||||||||
Proceeds from stock issuances, net | 5,458,750 | 5,491,056 | 11,714,545 | 6,644,057 | ||||||||||||||||
Net cash provided by financing activities | 5,480,320 | 5,978,098 | 13,191,638 | 7,836,099 | ||||||||||||||||
Net increase (decrease) in cash | 2,573,705 | 5,737,425 | 5,074,266 | 5,739,061 | ||||||||||||||||
Cash at beginning of period | 2,500,561 | 1,636 | | | ||||||||||||||||
Cash at end of period | $ | 5,074,266 | $ | 5,739,061 | $ | 5,074,266 | $ | 5,739,061 | ||||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||||||
Cash paid during the period for interest | $ | | $ | | $ | 34,498 | $ | |
The accompanying notes are an integral part of these statements.
4
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
Note A. Basis of Presentation
The interim financial statements included herein have been prepared by the Company without audit. These statements reflect all adjustments, which are, in the opinion of management, necessary to present fairly the financial position as of September 30, 1999 and the results of operations and cash flows for the period then ended. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes for the fiscal year ended June 30, 1999.
Note B. Inventories
Inventories consist primarily of raw materials, work in progress and finished goods, which are stated at the lower of cost or market. Cost is determined under the first-in, first-out (FIFO) valuation method.
Note C. Loss Per Common Share
The Company has adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per Share. Basic loss per common share is based upon the weighted average number of common shares outstanding during the period. Diluted loss per common share is not disclosed because the effect of the exchange or exercise of common stock equivalents would be antidilutive.
Note D. Stock Options and Warrants
During the three months ended September 30, 1999, the following changes occurred in outstanding stock options and warrants.
Options outstanding at June 30, 1999 | 1,008,000 | |||
Options granted | | |||
Options cancelled | | |||
Options exercised | | |||
Options outstanding at September 30, 1999 | 1,008,000 | |||
Warrants outstanding at June 30, 1999 | 1,890,977 | |||
Warrants granted | 240,000 | |||
Warrants cancelled | | |||
Warrants exercised | (3,600 | ) | ||
Warrants outstanding at September 30, 1999 | 2,127,377 | |||
Note E. Commitments and Contingencies
On July 9, 1999, Electronic Medical Distribution, Inc., (eMD.com), a subsidiary of the Company, entered into an agreement with iXL Enterprises, Inc. (iXL), a subsidiary of iXL, Inc. Under the agreement, iXL will provide strategic planning, and marketing advice in exchange for 600,000 shares of eMD.com common stock. The Company recorded a charge of $666,000 based on the fair market value of the eMD.com common stock issued to iXL. Fair market value was determined based on recent sales of eMD.com common stock in private placement offerings. On September 29, 1999, the Company recorded a charge of $1,106,400 for warrants granted for purchase of 240,000 shares of common stock. The warrants were granted for services rendered by CLR and Associates. The fair market value of the warrants was determined using the
5
Black-Scholes model. The total for the non-cash charges related to the issuance of both common stock of eMD.com and warrants during the quarter was $1,772,400. The eMD.com common stock issued to iXL increased minority interest by $666,000 and the issuance of warrants to CLR increased additional paid-in capital by $1,106,400.
The Company also entered into a separate agreement with iXL for the design and development of an internet website. Under the agreement, eMD.com will pay iXL a total of approximately $1,890,700 as work progresses on the development of the website. Through September 30, 1999, the Company had paid and expensed approximately $520,000 related to this agreement.
On July 6, 1999, the Company entered into a lease agreement with an unrelated party to lease an office building for a term of ten years. Required minimum lease payments under this lease is approximately $45,000 per month for the year ending June 30, 2000.
Note F. Subsequent Events
In addition to its development and marketing of proprietary antimicrobials, the Company is engaged in the sale and distribution of cleaning and deodorizing products in the retail and industrial segments. These products are exempt from regulation as pesticides under the Federal Insecticide, Fungicide and Rodenticide Act, as amended (FIFRA). Like many other companies engaged in the sale of these products, the Company has experienced regulatory scrutiny from the United States Environmental Protection Agency (EPA), which implements federal regulations under FIFRA regarding the labeling of these products. The EPA has alleged that certain claims on the labels
were inappropriate for these products in the absence of an EPA pesticide registration and has required the Company to revise the labels. While the Company did not agree with the EPA interpretation that the product claims were pesticidal, the Company voluntarily agreed to revise the labels. The EPA then authorized the sale of the products with the revised label. On September 27, 1999, the EPA filed an administrative complaint against the Company seeking the assessment of a civil penalty in the amount of $97,340 relating to these alleged violations as well as to an allegation that the Company refused an EPA inspection in 1998. The Company maintains that these allegations are without merit. However, in a demonstration of good faith and cooperation, the Company, while denying the alleged violations, agreed to the payment of a substantially reduced penalty on October 30, 1999 in the amount of $72,840.
In the month of October 1999, the company continued to develop its eMD.com business infrastructure. Significant contractual payment commitments of approximately $4,000,000 have been made by the company to several equipment, software and consulting business partners to complete the initial versions of the internet products by December 1999. Total cash payment commitments of approximately $3,000,000 are due by the end of December 1999. Management is currently raising additional investment capital to meet these commitments and to fund operational deficits that are anticipated throughout the early operational stages of the eMD.com strategy.
Note J. Continued Operations
The Companys continued existence as a going concern is ultimately dependent upon the success of future operations and its ability to obtain additional financing. As shown in the financial statements, the Company has incurred cumulative comprehensive losses of $9,996,997 from June 1, 1995 (inception) to September 30, 1999. The Company is a development stage company primarily engaged in research and development, patent filings, regulatory approvals and related activities. Through September 30, 1999, the Company had raised $15,459,938 of capital, including $6,124,750 classified as minority interest, through its initial public offering and other private offerings of its securities. The Company is actively seeking to obtain
6
additional funds through public and private equity, debt funding, strategic collaborative agreements, or from other sources. The failure to raise the necessary additional capital in the future may cause substantial delays or reduction of the scope of the Companys business plan. The Companys continuation as a going concern is dependent upon its ability to generate or raise sufficient cash flow to meet its obligations on a timely basis, and ultimately to attain profitability.
7
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Introduction
BioShield Technologies, Inc. (the Company), a Georgia Corporation organized in June, 1995 has, since inception, been a development stage company engaged primarily in research and development, patent filings, regulatory approvals and related activities geared towards the sale of its retail, industrial and institutional products. Most of the products which have been commercialized are in the cleaning and deodorizing segment. Some of these products may provide long-term killing action of microorganisms responsible for cross contamination and viral contamination. Many of these products inhibit and control the growth of over 100 viral, bacteria, fungi and yeast organisms. Revenues generated from operations to date have primarily been limited to test marketing of the Companys antimicrobial products in all division areas.
During the quarter the Company was granted a patent by The U.S. Patent and Trademark Office for one of its water-based, non-leaching anti-microbial compounds. This represents a significant step in the commercialization of the Companys products and will provide enhanced opportunities to engage partners in the consumer, industrial and OEM markets to commercialize its product development and enter into distribution agreements.
Also during the quarter, the Company continued to successfully build brand recognition and market penetration of its new OdorFree product line. This brand will compete in the multi-million dollar odor elimination packaged goods category. The national rollout is conservatively proceeding by establishing its market presence within each individual market. Currently OdorFree is sold through several major super market chains in the states of Texas, Louisiana and Florida. The Company was also chosen to market and deliver A&Ps Americas Choice private label odor eliminator product. This is in addition to the prior quarters addition of the Laura Lynn private label of Ingles Markets.
On April 7, 1999, the company created a subsidiary to develop electronic commerce via the internet. Electronic Medical Distribution, Inc. (the subsidiary, doing business as eMD.com), has not yet commenced operations and from its formation to date has been in the development stage, which means its primary focus has been organizational activities, raising capital, gaining regulatory approvals, research and development and further investigation into new markets. eMD.com will seek to integrate three product offerings for providers (point of care medication management, electronic medical records, and pharmaceutical care services) with a comprehensive healthcare website. eMD.com is scheduled to rollout its web products for both physicians and consumers in December 1999.
Financial Condition and Results of Operations
Net sales for the three month period ended September 30, 1999 were $144,445, an increase of $56,591, or 64% over the same period last year. The increase was due primarily to the expanded marketing of the OdorFree product line in the retail markets.
Gross profit of $53,957 for the quarter ended September 30, 1999 represents 37% of net sales as compared to $54,118, or 62% of net sales, for the quarter ended September 30, 1998. This decrease was due primarily to the shift in product mix weighted more toward the retail market, which has a lower profit margin than the industrial and institutional market.
Marketing and selling expenses were $805,467 for the quarter ended September 30, 1999, an increase of $691,088 from $114,379 incurred during the quarter ended September 30, 1998. This increase relates principally to the rollout of the OdorFree product line. The increase consists of approximately $400,000 in advertising and promotion activities, as well as $50,000 in slotting fees for the OdorFree product line. Other cost increases consisted of investments made in additional staff and the inception of branding promotions for eMD.com.
Research and development expenses in the quarter ending September 30, 1999 were $633,984, compared to $37,802 during the quarter ending September 30, 1998. This represents an increase of $596,182 and was due
8
General and administrative expenses for the quarter ending September 30, 1999 were $3,023,654, or an increase of $2,763,672 over the same period ending September 30, 1998. These higher costs were primarily due to (1) an increase in staff and expenses of approximately $651,000 associated with building the Companys infrastructure, (2) the start-up and organization costs of approximately 340,000 directly related the web site development of eMD.com and (3) expenses in the amount of $1,772,400 recorded pursuant to FAS 123 related to the issuance of common shares of eMD stock to iXL for professional services rendered and stock warrants in BioShield granted to CLR & Associates for professional services rendered. Please refer to Note E Commitments and Contingencies for additional information related to the accounting treatment. The companys accounting policy for capitalization of internally developed software is conservative, and all associated costs related to internal website development have been expensed in the period incurred.
Interest dividend and income during the quarter ended September 30, 1999 was $61,971 as compared to $818 in the quarter ended September 30, 1998. The increase was due to larger invested cash balances as a result of the proceeds from private equity placements in the eMD.com subsidiary.
Interest expense of $16,335 in the quarter ended September 30, 1998 represented interest paid to private note holders who loaned the Company an aggregate of $450,000. All such monies were repaid from the proceeds of the initial public offering during the second fiscal quarter of 1999. There were no borrowings or interest expense incurred for the quarter ending September 30, 1999.
As a result of the reasons set forth above, the Companys operations generated a net loss of $4,347,177 or ($ 0.69) per common share for the quarter ending September 30, 1999 compared to a net loss of $373,562 or ($ 0.08) per common share for the quarter ended September 30, 1998. Cumulative losses from the inception of the Company to September 30, 1999 totaled $9,996,997 or ($2.12) per common share.
Liquidity
The Companys cash and cash equivalents totaled $5,074,266 at September 30, 1999 and $2,500,561 at June 30, 1999. The higher cash position is due to the receipt of net proceeds of $5,458,750 from the sale of 1,284,797 common shares of eMD.com at a price of $4.67 per share. The placement is to fund the initial costs of the eMD.com website and was sold under a securities purchase agreement eMD.com entered into on June 30, 1999. The agreement provides for the sale of up to 3,218,884 shares of eMD common stock to investors at a price of $4.67 per share. At September 30, 1999, there were 29,274,090 issued and outstanding shares of eMD.com. In addition, during the quarter the Company entered into a revolving credit facility of up to $6.25 million with private investors. The credit facility is to be repaid in the common stock of the Company based upon an agreed formula. To date, the Company has not drawn against it and it may not until our registration statement for shares of common stock is filed and declared effective by the U.S. Securities and Exchange Commission. The Company believes that it has sufficient resources to meet its short term operating needs.
However, the Company expects to continue to have a substantial need to fund operating losses and the purchases of additional capital equipment for an indefinite period. Accordingly, the Company will be required to obtain additional capital in the very near future. The development of eMD.com, as well as commercialization of the parent companies products will require additional capital in order to successfully launch the site and related business. The Company is actively seeking to obtain additional funds through public or private equity or debt funding, strategic collaborative agreements, or from other sources. The failure to raise the necessary additional capital in the very near future will cause substantial delay or reduction of the scope of business. No assurance can be given that either the Company or eMD.com will be successful in its efforts to obtain additional capital, that capital will be available on terms acceptable to the Company or eMD.com or on terms that will not significantly dilute the interests of existing shareholders.
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Forward Looking Statements
When used in this form 10-QSB, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, or similar expressions are intended to identify forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Companys market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Companys market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as to the date made. The Company wishes to advise readers that the factors listed above could affect the Companys financial performance and could cause the Companys actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Year 2000 Issues
Because our business depends on computer software, we have developed and are implementing a plan to assess the Year 2000 readiness of our systems. We rely heavily on third-party vendors, licensors and providers of hardware, software and services. We have requested that these suppliers assure us that their products are Year 2000 ready. Because our business is new and the purchases were made long after problems associated with Year 2000 were discussed and because we generally rely on large established vendors, we believe that there will be minimal Year 2000 impact on us. There can be no absolute assurances that the third-party software, hardware or services incorporated into our systems will function fully, however, and some may need to be revised or replaced, which could be time consuming and expensive, potentially resulting in lost revenues and increased costs for the Company.
Management Changes
During the month of August 1999, two key employees left the Company. Dr. Joachim Berkner, the Companys Director of Research and Development, Organic Chemistry, resigned to take a position with another company. The Company is actively seeking a replacement for Dr. Berkner. Jeffrey A. Parker, the companys Chief Operating Officer and Vice President of Marketing and Sales, also resigned and his duties have been distributed to others. The Company also reached an agreement with Mr. Parker which allows him to exercise certain of his options and also continues his salary and benefits through December 31, 1999.
Subsequent Events
In addition to its development and marketing of proprietary antimicrobials, the Company is engaged in the sale and distribution of cleaning and deodorizing products in the retail and industrial segments. These products are exempt from regulation as pesticides under the Federal Insecticide, Fungicide and Rodenticide Act, as amended (FIFRA). Like many other companies engaged in the sale of these products, the Company has experienced regulatory scrutiny from the United States Environmental Protection Agency (EPA), which implements federal regulations under FIFRA regarding the labeling of these products. The EPA alleged that certain claims on the labels were inappropriate for these products in the absence of an EPA pesticide registration and required the Company to revise the labels to remove alleged pesticidal claims. While the Company did not agree with the EPA interpretation that the claims were pesticidal, the Company voluntarily agreed to revise the labels for these products. The EPA then authorized the sale of the products with the revised labels. On September 27, 1999, the EPA filed an administrative complaint against the Company seeking the assessment of a civil penalty in the amount of $97,340 relating to these alleged violations as well as an allegation that the Company refused an EPA inspection in 1998.
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The Company maintains that these allegations are without merit. However, in a demonstration of good faith and cooperation, the Company, while denying the alleged violations, agreed to the payment of a substantially reduced penalty on October 30, 1999 in the amount of $72,840.
In the month of October 1999, the company continued to develop its eMD.com business infrastructure. Significant contractual payment commitments of approximately $4,000,000 have been made by the company to several equipment, software and consulting business partners to complete the initial versions of the internet products by December 1999. Total cash payment commitments of approximately $3,000,000 are due by the end of December 1999. Management is currently seeking to raise additional investment capital to meet these commitments and to fund operational deficits that are anticipated throughout the early operational stages of the eMD.com strategy. And no assurances can be given that the Company will be successful in raising additional capital.
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PART II. OTHER INFORMATION
Items 1, 2, 3, 4, and 5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit | ||||||
Number | Description | |||||
10.95 | | Warrant Agreement between the Company and CLR & Associates dated September 29, 1999. | ||||
27 | | Financial Data Schedule (for SEC use only). |
(b) Reports on Form 8-K
None.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BIOSHIELD TECHNOLOGIES, INC. | ||
Date: November 15, 1999 |
/s/ TIMOTHY C. MOSES TIMOTHY C. MOSES President and Chief Executive Officer |
|
Date: November 15, 1999 |
/s/ TIMOTHY S. HEYERDAHL TIMOTHY S. HEYERDAHL Chief Financial Officer |
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BIOSHIELD TECHNOLOGIES, INC
Exhibits | ||||||
Number | Description | |||||
10.95 | | Warrant Agreement between the Company and CLR & Associates dated September 29, 1999. | ||||
27 | | Financial Data Schedule (for SEC use only). |
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